9
------------
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
December 31 1993 1992
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 111,295 $ 145,413
Interest-bearing balances with banks 500 500
Federal Funds sold 50,000 105,000
- ----------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 161,795 250,913
Investment securities:
U.S. Treasury and government agencies 97,652 243,884
States and political subdivisions 25,522 2,141
Other 11,736 10,006
- ----------------------------------------------------------------------------------------------------------------
Total investment securities (market value: 1993, $135,899; 1992, $259,205) 134,910 256,031
Securities available for sale (market value: 1993, $418,616; 1992, $233,483) 417,033 230,062
Trading account securities - 1,514
Loans:
Commercial and industrial 353,775 326,199
Real estate-commercial 745,732 719,595
Real estate-residential 352,937 302,630
Real estate-construction 51,545 77,626
Consumer 276,845 278,919
- ----------------------------------------------------------------------------------------------------------------
Total loans 1,780,834 1,704,969
Less:Allowance for loan losses 63,788 75,838
- ----------------------------------------------------------------------------------------------------------------
Net loans 1,717,046 1,629,131
Premises and equipment, net 36,472 36,996
Foreclosed real estate, net 45,003 62,540
Accrued income receivable 16,353 17,927
Other assets 37,735 21,965
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 2,566,347 $ 2,507,079
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand (non-interest bearing) $ 424,238 $ 387,248
Savings 1,094,709 1,024,396
Time (time deposits of $100,000 or more: 1993, $92,766; 1992, $79,433) 802,028 886,285
- ----------------------------------------------------------------------------------------------------------------
Total deposits 2,320,975 2,297,929
Short-term borrowings 6,795 8,215
Accrued expenses and other liabilities 22,312 18,317
Long-term debt 19,240 19,290
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 2,369,322 2,343,751
- ----------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, authorized 3,000,000 shares,
Series A, $2.50 Cumulative Convertible, no par value
Issued and outstanding: 1993, 68,815 shares; 1992, 69,822 shares;
liquidation preference $23.00 per share 1,583 1,606
Common stock, no par value
Authorized 56,393,972 shares
Issued: 1993, 50,006,514 shares; 1992, 49,968,009 shares 62,508 62,460
Paid-in capital 107,904 107,810
Retained earnings (accumulated deficit) 26,587 (6,991)
Treasury stock, at cost (146,690 shares) (1,557) (1,557)
- -----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 197,025 163,328
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,566,347 $ 2,507,079
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
10
- -------------
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans $ 137,595 $ 147,563 $ 178,090
Investment securities:
Taxable interest 25,313 23,712 24,009
Tax-exempt interest 328 191 2,299
Interest-bearing balances with banks 16 14 11
Other 3,093 3,814 6,158
- -------------------------------------------------------------------------------------------------------------------------
Total interest income 166,345 175,294 210,567
- -------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Savings deposits 25,303 30,374 44,022
Time deposits 32,612 49,447 74,613
Other time deposits of $100,000 or more 3,063 2,382 11,245
Short-term borrowings 208 220 576
Long-term debt 1,300 1,303 1,305
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense 62,486 83,726 131,761
- -------------------------------------------------------------------------------------------------------------------------
Net interest income 103,859 91,568 78,806
Provision for loan losses 17,000 23,000 24,000
- -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 86,859 68,568 54,806
- -------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Trust department income 3,932 3,578 3,316
Service charges on deposit accounts 9,849 6,341 3,796
Credit card merchant income 2,490 2,334 2,282
Gain on sale of securities and loans 5,127 868 13,398
Commissions and other income 3,778 2,806 2,397
- -------------------------------------------------------------------------------------------------------------------------
Total non-interest income 25,176 15,927 25,189
- -------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Salaries and employee benefits 36,560 33,806 34,162
Net occupancy 6,819 6,895 6,954
Furniture and equipment 3,298 3,164 3,300
Insurance premiums on deposits 5,992 5,225 5,265
Credit card merchant expense 1,993 1,946 1,786
Other operating expenses 16,639 16,931 17,514
Foreclosed real estate expense, net 11,134 6,840 7,811
- -------------------------------------------------------------------------------------------------------------------------
Total operating expenses 82,435 74,807 76,792
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes, extraordinary credit and
change in accounting principle 29,600 9,688 3,203
Income tax expense 461 3,452 247
- -------------------------------------------------------------------------------------------------------------------------
Income before extraordinary credit and change in accounting principle 29,139 6,236 2,956
Extraordinary credit-utilization of net operating loss carryforward - 3,236 -
Cumulative effect of change in accounting principle 7,168 - -
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 36,307 $ 9,472 $ 2,956
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Primary 50,121,132 28,814,006 21,382,228
Fully Diluted 52,625,002 28,814,006* 21,382,228*
INCOME PER COMMON SHARE
Primary
Income before extraordinary credit and change in
accounting principle $ .58 $ .21 $ .13
Extraordinary credit - .11 -
Cumulative effect of change in accounting principle .14 - -
Net income .72 .32 .13
Fully Diluted
Income before extraordinary credit and change in
accounting principle .57 .21* .13*
Extraordinary credit - .11* -
Cumulative effect of change in accounting principle .14 - -
Net income .71 .32* .13*
- -------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements. * Convertible securities have no dilutive effect.
11
-------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Retained
Earnings
Preferred Common Paid-in (Accumulated Treasury
(dollars in thousands) Stock Stock Capital Deficit) Stock
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1990 $ 1,611 $ 26,964 $ 75,995 $ (18,187) $ (3,484)
Issuance of common stock to the Employee Stock
Ownership Plan (181,410 shares) (1,232) 1,927
Issuance of common stock due to conversion of
102 preferred shares (677 shares) (2) 1 1
Net income 2,956
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1991 1,609 26,965 75,996 (16,463) (1,557)
Issuance of common stock in connection with the
rights offering (28,394,932 shares) 35,494 31,812
Issuance of common stock due to conversion of
127 preferred shares (1,114 shares) (3) 1 2
Net income 9,472
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 1,606 62,460 107,810 (6,991) (1,557)
Issuance of common stock due to conversion of
1,007 preferred shares (8,840 shares) (23) 11 12
Issuance of common stock due to exercise of
stock options (29,665 shares) 37 82
Net income 36,307
Common stock dividend declared ($.0425 per share) (2,119)
Preferred stock dividend declared ($2.50 per share) (610)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 $ 1,583 $ 62,508 $ 107,904 $ 26,587 $ (1,557)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
12
- --------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 36,307 $ 9,472 $ 2,956
Adjustments to reconcile net income to net cash flows
provided from operating activities:
Provision for loan losses 17,000 23,000 24,000
Provision for losses on foreclosed real estate 4,672 232 3,828
Amortization of unearned income on loans 119 186 365
Amortization of intangible assets 1,550 1,550 1,550
Depreciation on premises and equipment 3,523 3,094 3,046
Proceeds from maturities of securities available for sale 7,181 -- --
Proceeds from sales of securities available for sale 155,240 50,836 142,183
Purchase of securities available for sale (175,546) -- --
Gains on sales of securities (5,127) (868) (7,530)
Proceeds from sales of trading account securities 33,471 42,535 41,226
Purchase of trading account securities (31,957) (43,453) (37,755)
Gain on sale of loans -- -- (5,868)
Changes in operating assets and liabilities:
Decrease (increase) in accrued income receivable 1,574 (478) 9,530
Deferred income tax charge -- -- 1,282
(Increase) decrease in income taxes receivable, net (15,743) 5,329 (19,787)
(Increase) decrease in other assets (1,577) 3,604 24,257
Increase (decrease) in accrued expenses and other liabilities 1,833 (9,356) 6,208
- --------------------------------------------------------------------------------------------------------------------
Net cash flows provided from operating activities 32,520 85,683 189,491
- --------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of investment securities 68,315 126,542 204,514
Proceeds from sales of investment securities 134,879 -- 432,024
Purchase of investment securities (250,792) (216,612) (846,526)
Net (increase) decrease in loans (121,801) 1,734 149,618
Proceeds from sale of loans 9,926 -- 60,238
Sales of and payments on foreclosed real estate 19,706 28,625 17,201
Purchases of premises and equipment (2,999) (1,627) (2,311)
- --------------------------------------------------------------------------------------------------------------------
Net cash flows (used in) provided from investing activities (142,766) (61,338) 14,758
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in demand and savings deposits 107,303 108,710 (13,117)
Net decrease in time deposits (84,257) (172,695) (167,202)
Net decrease in short-term borrowings (1,420) (2,137) (6,851)
Principal payments on long-term debt (50) (50) (50)
Proceeds from the issuance of common stock 119 67,306 695
Cash dividends on preferred stock (567) -- --
- --------------------------------------------------------------------------------------------------------------------
Net cash flows provided from (used in) financing activities 21,128 1,134 (186,525)
- --------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (89,118) 25,479 17,724
Cash and cash equivalents, beginning of year 250,913 225,434 207,710
- --------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 161,795 $ 250,913 $ 225,434
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Amount paid during the year for:
Interest $ 64,335 $ 92,708 $ 137,655
Income taxes 9,044 1,114 431
Supplemental schedule of noncash investing activities
Increase in foreclosed real estate 6,841 2,409 10,471
- --------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
13
-------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements of Citizens First Bancorp,
Inc. ("Citizens") include the accounts of Citizens and its wholly-owned
subsidiary, Citizens First National Bank of New Jersey ("Bank"). All significant
intercompany accounts and transactions have been eliminated.
SECURITIES PORTFOLIO - Investment securities are stated at cost, adjusted for
amortization of premiums and accretion of discounts. Investment securities are
stated at cost because Citizens has both the ability and intent to hold these
securities to maturity. Investment securities gains and losses are recognized by
the specific identification method.
Securities that management determines will not be held to maturity are
designated as available for sale. Securities available for sale include
securities that management intends to use as part of its asset/liability
strategy, or securities that may be sold in response to changes in interest
rates, changes in prepayment risks or the need to increase capital. Securities
available for sale and trading account securities are carried at the lower of
aggregate cost or market value.
LOANS - Loans are stated net of unearned income. Net unearned income is
recognized as income using a method which approximates the interest method.
Interest income is not accrued on loans where management has determined that the
borrowers may be unable to meet contractual principal or interest obligations or
where interest or principal is 90 days or more past due, unless the loans are
well secured and in the process of collection. When a loan is placed on
nonaccrual, interest accruals cease and uncollected past due interest (including
interest applicable to prior years, if any) is reversed and charged against
current income. Thereafter, interest income is not recognized unless the
financial condition and payment record of the borrower warrant the recognition
of interest income. Interest on loans that have been restructured with modified
terms is accrued according to the renegotiated terms.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is established through
charges to income. Loan losses are charged against the allowance for loan losses
when management believes that the collectibility of principal is unlikely. If
the allowance is below the level considered by management to be sufficient to
absorb future losses on outstanding loans and commitments, the provision for
loan losses is increased to the level considered necessary to provide an
adequate allowance. The allowance is an amount that management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of the loans and prior
loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans and current economic conditions that
may affect the borrowers' ability to pay.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less
accumulated depreciation, computed on the straight-line method over estimated
useful lives of the assets. Leasehold improvements are amortized over the
shorter of the lives of the improvements or the terms of the leases on a
straight-line basis. Certain leases have been capitalized and are being
amortized over their terms on a straight-line basis. Expenditures for
maintenance and repairs are charged to operating expenses; major replacements
and improvements are capitalized.
FORECLOSED REAL ESTATE - Real estate properties acquired through loan
foreclosure or that are insubstance foreclosures are recorded at the lower of
cost or estimated fair value less estimated costs to sell. Subsequent valuations
are periodically performed by management and the carrying value is adjusted by a
charge to expense to reflect any subsequent declines in the estimated fair
value. As a result, further declines in real estate values may result in
increased foreclosed real estate expense in the future. Routine holding costs
are charged to expense as incurred.
OTHER ASSETS - Other assets include deferred federal and state income taxes. In
addition, other assets include excess of cost over net assets acquired, which is
being amortized on a straight-line basis over 20 years, and core deposit
intangible, which is being amortized on a straight-line basis over 10 years.
INCOME TAXES - The provision for income taxes is based on pre-tax income which
differs in some respects from taxable income. In years prior to 1993, when
income and expenses were recognized in different periods for financial reporting
purposes than for income tax reporting purposes, deferred taxes were provided on
timing differences at the effective tax rate and the resulting deferred tax
asset or liability was not adjusted for subsequent changes in the tax rate.
Beginning in 1993, all cumulative temporary differences, as defined by Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), are tax effected using the current tax rate.
14
- -------------
RECENT ACCOUNTING PRONOUNCEMENTS - In 1993, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115") which is
effective for fiscal years beginning after December 15, 1993. SFAS 115
establishes accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. As a result of adopting SFAS 115 in the first quarter of 1994,
Citizens will mark-to-market securities designated as available for sale in its
securities portfolio. Had Citizens adopted SFAS 115 at January 1, 1994, the
mark-to-market adjustment on the existing available for sale portfolio would
have been $1,583,000, which would have required the recording of the adjustment
as an increase in shareholders' equity of approximately $950,000, net of income
taxes, in accordance with SFAS 115.
In 1993, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan"
("SFAS 114") which is effective for fiscal years beginning after December 15,
1994. SFAS 114 requires that impaired loans, as defined, be measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. Citizens has not evaluated the impact of adopting SFAS 114 on the
financial statements.
INCOME PER COMMON SHARE - Primary income per common share is computed by
dividing net income, less dividends on the convertible preferred stock, by the
weighted average number of common shares and common share equivalents
outstanding during the year. Fully diluted income per common share is computed
by dividing net income plus the interest on the convertible subordinated
debentures, net of income tax benefit, by the weighted average number of common
shares and common share equivalents outstanding during the year, plus the number
of shares issuable on conversion of the preferred stock and convertible
subordinated debentures. For 1992 and 1991, convertible securities had no
dilutive effect.
2. REGULATORY PROCEEDINGS
In December 1992, as a result of the Bank's improved capital position and other
factors, the Office of the Comptroller of the Currency ("OCC") terminated a
Cease and Desist Order issued in 1990 and entered into a Memorandum of
Understanding ("MOU") with the Board of Directors setting forth areas that the
Bank will continue to address to further the rebuilding process, including
reducing the level of nonperforming assets. The MOU requires the Bank to
maintain a Tier 1 capital ratio of 6.5% of adjusted total assets, a Tier 1
capital ratio of 7.5% of risk-weighted assets, and total capital of 10.0% of
risk-weighted assets. At December 31, 1993, the Bank was in full compliance with
all regulatory capital requirements.
In December 1990, the Board of Directors of Citizens entered into an agreement
with the Federal Reserve Bank of New York ("FRB") concerning the operations of
Citizens, the purpose of which is to restore and maintain the financial health
of Citizens. Included among the matters covered by the agreement with the FRB
are restrictions on the payment of dividends, bonuses, benefits and expenditures
of an extraordinary nature by Citizens without notice to, or the prior approval
of, the FRB. In March 1993, Citizens executed an amendment to its written
agreement with the FRB permitting Citizens to declare and pay regular quarterly
dividends on the preferred stock without being required to obtain prior written
approval.
3. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Citizens is a party to financial instruments with off-balance sheet risk in the
normal course of business. These instruments include commitments to extend
credit, standby letters of credit and forward currency contracts.
Citizens' exposure to credit loss, in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit, is represented by the contractual amount of those
instruments. Citizens applies the same credit and underwriting policies in
making commitments and conditional obligations as it does in extending loans to
customers.
The amount of these instruments at December 31 follows:
- --------------------------------------------------------------------------
(in thousands) 1993 1992
- --------------------------------------------------------------------------
Financial instruments where contract
amounts represent credit risk:
Commitments to extend credit $193,963 $200,867
Standby letters of credit 16,101 24,586
Forward currency contracts 2,466 1,693
- --------------------------------------------------------------------------
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition in the contract. Commitments generally
have fixed expiration dates and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
15
-------------
Standby letters of credit are conditional commitments issued to assure the
performance of a customer to a third party. Those commitments are primarily
issued to support public and private bond financing, financial obligations and
collateral support to bonding companies. Most standby letters of credit extend
for less than five years although some expire in decreasing amounts through
2005. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loans to customers. The extent of collateral
as a percentage of those commitments at December 31, 1993 varies and averaged
80%.
Forward currency contracts are contracts for delayed delivery of foreign
currencies in which the seller agrees to make delivery at a future date of a
specified currency at a specified price. Risks arise from the possible inability
of counterparties to meet the terms of their contracts and from currency
fluctuations.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS - For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES, SECURITIES AVAILABLE FOR SALE AND TRADING ACCOUNT
SECURITIES - For securities and derivative instruments held for trading
purposes, which include municipal bonds, and marketable securities held for
investment purposes or available for sale, fair values are based on quoted
market prices or dealer quotes. For other securities held as investments, fair
value equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
LOANS - The fair value of the overall portfolio of performing residential and
commercial mortgages, commercial loans and consumer loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. For nonperforming loans, fair value is calculated by
discounting future estimated cash flows. The calculation of fair value is
adjusted by the allowance for loan losses established based upon the credit risk
of the overall portfolio.
DEPOSIT LIABILITIES - The fair value of demand deposits, savings deposits, and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered for deposits
of similar remaining maturities.
LONG-TERM DEBT - Fair value is based on the quoted market price for the
outstanding debt or estimated fair value using originally quoted market prices
for similar securities.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, AND FORWARD CURRENCY
CONTRACTS - The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair value
of guarantees and letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date.
The estimated fair values of the Citizens' financial instruments at December 31
are as follows:
- -----------------------------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
(in thousands) AMOUNT VALUE Amount Value
- -----------------------------------------------------------------------------------------------
Financial assets:
Cash and cash
equivalents $ 161,795 $ 161,795 $ 250,913 $ 250,913
Trading account
securities - - 1,514 1,514
Investment securities
and securities
available for sale 551,943 554,515 486,093 492,688
Total loans 1,780,834 1,792,049 1,704,969 1,708,844
Less: Allowance
for loan losses (63,788) (63,788) (75,838) (75,838)
- -----------------------------------------------------------------------------------------------
$2,430,784 $2,444,571 $2,367,651 $2,378,121
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Financial liabilities:
Deposits $2,320,975 $2,324,849 $2,297,929 $2,304,094
Short-term
borrowings 6,795 6,795 8,215 8,215
Long-term debt 19,240 16,258 19,290 14,242
- -----------------------------------------------------------------------------------------------
$2,347,010 $2,347,902 $2,325,434 $2,326,551
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Off-balance sheet financial instruments:
Commitments to
extend credit $ 193,963 $ 193,963 $ 200,867 $ 200,867
Standby letters
of credit 16,101 16,101 24,586 24,586
Forward currency
contracts 2,466 2,466 1,693 1,693
- -----------------------------------------------------------------------------------------------
16
- -------------
5. SECURITIES PORTFOLIO
Investment securities of $55,100,000 at December 31, 1993, and $133,600,000 at
December 31, 1992, were pledged for public deposits, securities sold under
repurchase agreements and fiduciary purposes as required by law. The market
value of the securities portfolio held at December 31 follows:
- ----------------------------------------------------------------------
(in thousands) 1993 1992
- ----------------------------------------------------------------------
INVESTMENT SECURITIES:
U.S. Treasury and government
agencies $ 98,516 $246,743
States and political subdivisions 25,651 2,266
Other 11,732 10,196
- ----------------------------------------------------------------------
135,899 259,205
- ----------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury and government
agencies 418,616 233,483
- ----------------------------------------------------------------------
Total securities portfolio $554,515 $492,688
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
The gross realized gains and losses on securities sold during the years ended
December 31 follow:
- -------------------------------------------------------------------------------
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
INVESTMENT SECURITIES:
Gross gains $2,966 $ - $6,062
Gross losses - - (67)
SECURITIES AVAILABLE FOR SALE:
Gross gains 2,161 868 1,535
Gross losses - - -
- -------------------------------------------------------------------------------
The gross unrealized gains and losses on the securities portfolio held at
December 31 follow:
- -----------------------------------------------------------------------------
(in thousands) 1993 1992
- -----------------------------------------------------------------------------
GAINS LOSSES Gains Losses
- -----------------------------------------------------------------------------
INVESTMENT SECURITIES:
U.S. Treasury and
government agencies $ 887 $ 23 $2,931 $73
States and political
subdivisions 140 11 126 -
Other - 4 194 4
- ------------------------------------------------------------------------------
$1,027 $ 38 $3,251 $77
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury and
government agencies $2,592 $1,009 $3,421 $-
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The book value and market value of the securities portfolio held at December 31,
1993 by contractual maturity follow:
- -------------------------------------------------------------------
(in thousands) Book Value Market Value
- -------------------------------------------------------------------
Within 1 year $271,343 $272,914
After 1 through 5 years 276,249 277,196
After 5 through 10 years 1,178 1,232
After 10 years 3,173 3,173
- -------------------------------------------------------------------
$551,943 $554,515
- -------------------------------------------------------------------
- -------------------------------------------------------------------
6. ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses for the years ended December 31
follows:
- -------------------------------------------------------------------------------
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
Balance, beginning of year $75,838 $75,597 $101,209
Provision charged to
operating expenses 17,000 23,000 24,000
Loans charged off (31,697) (27,988) (53,039)
Recoveries on loans 2,647 5,229 3,427
- -------------------------------------------------------------------------------
Balance, end of year $63,788 $75,838 $75,597
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7. LOANS TO RELATED PARTIES
The Bank has, and expects to have in the future, banking transactions in the
ordinary course of business with directors, executive officers and their
affiliates on the same terms as those prevailing for comparable transactions
with other borrowers. These loans amounted to $29,204,000 and $26,615,000 at
December 31, 1993 and 1992, respectively, and do not involve more than normal
risks of repayment. At December 31, 1993 and December 31, 1992 these loans
represented 14.8% and 16.3%, respectively, of shareholders' equity. During 1993,
new loans in the amount of $9,040,000 were made to related parties and
repayments and reclassified loans of a retired director were $6,451,000. During
1992, new loans in the amount of $24,611,000 were made to related parties and
repayments were $7,858,000. In addition, a related party was contingently liable
in the amount of $25,000 on a standby letter of credit at December 31, 1993. At
December 31, 1992, a related party was contingently liable in the amount of
$2,370,000 on a standby letter of credit. At December 31, 1993 and 1992 a loan
in the amount of $689,000 and $709,000, respectively, was on nonaccrual status
to a partnership in which a director had a 1% limited partner interest.
17
-------------
8. NONPERFORMING ASSETS
Nonperforming assets of $109,194,000 and $164,952,000, which represent 5.98% and
9.33% of total loans and foreclosed real estate as of December 31, 1993 and
1992, respectively, consist of all nonperforming loans and foreclosed real
estate. Gross interest income of approximately $8,059,000 and $10,884,000 would
have been recorded for the years ended December 31, 1993 and 1992, respectively,
if nonaccrual loans had been current. Interest earned and recognized on a cash
basis on nonaccrual loans amounted to $820,000 and $1,086,000 for the years
ended December 31, 1993 and 1992, respectively. In addition, interest earned on
restructured loans that are performing in accordance with their modified terms
amounted to $1,984,000 and $1,200,000 for the years ended December 31, 1993 and
1992, respectively. These loans would have earned $4,314,000 and $2,754,000 for
the years ended December 31, 1993 and 1992, respectively, had they performed in
accordance with their original terms. For additional discussion, see page 31
under the caption "Asset Quality."
In 1993, Citizens sold approximately $42 million of loans and foreclosed real
estate, resulting in a reduction in nonperforming assets of approximately $27
million. The transaction resulted in a reduction of the allowance for loan
losses of $15 million and a charge to foreclosed real estate expense of
approximately $3 million.
9. PREMISES AND EQUIPMENT
Premises and equipment at December 31 consist of:
- ------------------------------------------------------------------------------
(in thousands) 1993 1992
- ------------------------------------------------------------------------------
Land $ 5,573 $ 5,573
Buildings 21,691 21,281
Furniture and equipment 19,365 27,706
Leasehold improvements 11,614 11,506
- ------------------------------------------------------------------------------
58,243 66,066
Less: Allowance for depreciation and
amortization 21,771 29,070
- ------------------------------------------------------------------------------
$36,472 $36,996
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
10. SHORT-TERM BORROWINGS
Short-term borrowings at December 31 consist of:
- ----------------------------------------------------------
(in thousands) 1993 1992 1991
- ----------------------------------------------------------
Securities sold under
repurchase agreements $6,795 $7,015 $9,452
Federal Funds purchased - 1,200 900
- ----------------------------------------------------------
$6,795 $8,215 $10,352
- ----------------------------------------------------------
- ----------------------------------------------------------
The majority of securities sold under repurchase agreements mature within 45
days and Federal Funds purchased mature in one business day.
Additional information regarding securities sold under repurchase agreements
follows:
- --------------------------------------------------------------------------
(in thousands) 1993 1992 1991
- --------------------------------------------------------------------------
During the year:
Maximum outstanding
at any month-end $13,987 $8,471 $13,553
Daily average 8,087 7,256 10,526
Weighted average interest rate 2.53% 2.88% 5.10%
At December 31:
Weighted average interest rate 2.41% 2.48% 4.23%
11. LONG-TERM DEBT
Long-term debt at December 31 consists of:
- --------------------------------------------------------------------------
(in thousands) 1993 1992
- --------------------------------------------------------------------------
6.75% convertible subordinated
debentures due August 1, 2001 $18,990 $18,990
6.00% bonds due December 1, 1994-98 250 300
- --------------------------------------------------------------------------
$19,240 $19,290
- --------------------------------------------------------------------------
The 6.75% convertible subordinated debentures are convertible into common stock
at any time prior to the maturity date at a conversion price of $10.19 per
share. The debentures are redeemable at any time at the option of Citizens, at a
price equal to 101% of the principal amount beginning on August 1, 1992 and
declining to a price of 100% of the principal amount on August 1, 1993. At
December 31, 1993, Citizens had reserved 1,863,591 shares of authorized common
stock for issuance in connection with the convertible subordinated debentures.
12. PREFERRED STOCK
Under its Certificate of Incorporation, Citizens is authorized to issue
3,000,000 shares of preferred stock. The Board of Directors is authorized to
issue preferred stock in series and to fix the particular designations, powers,
preferences, rights (including voting rights), qualifications and restrictions
of each series not fixed in the Certificate of Incorporation, all without
further approval of common stock shareholders.
In January 1993, Citizens, with the approval of the FRB, declared the payment of
nine quarterly dividends in arrears and the regular quarterly dividend payable
to the holders of preferred stock on February 1, 1993. As previously stated, in
March 1993, Citizens executed an amendment to its written agreement with the FRB
permitting Citizens to declare and pay regular quarterly dividends on the
preferred stock without being required to obtain prior written approval.
18
- -------------
At the option of Citizens, the Series A Preferred Stock may be redeemed at
$23.00 per share, plus any accrued and unpaid dividends. Holders may, at their
option, convert shares of the Series A Preferred Stock into shares of common
stock at the rate of 8.78 shares of common stock for each share converted. At
December 31, 1993, Citizens had 604,195 shares of authorized common stock
reserved for issuance in connection with the Series A Preferred Stock.
13. INCOME TAXES
Effective January 1, 1993, Citizens adopted SFAS 109, which requires a change
from the "deferred method" to the "liability method" of accounting for income
taxes. The cumulative effect of adopting SFAS 109 on years prior to 1993
aggregated to an increase in net income of $7,168,000 due to the accelerated
recognition of the deferred tax assets, net of a valuation allowance. Financial
statements for periods prior to January 1, 1993 have not been restated.
Income tax expense for the years ended December 31 consists of the following
components:
- ---------------------------------------------------------------------------
(in thousands) 1993 1992 1991
- ---------------------------------------------------------------------------
Federal income tax
Currently payable
(receivable) $8,547 $2,110 $(1,282)
Adjustment due to change in
tax rate 330 - -
Deferred (benefit) charge (8,877) - 1,282
State taxes on income
Currently payable 2,750 1,342 247
Deferred benefit (2,289) - -
- ---------------------------------------------------------------------------
461 3,452 247
Extraordinary credit-utilization of
net operating loss carryforward - (3,236) -
- ---------------------------------------------------------------------------
$461 $ 216 $ 247
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Reconciliation of the statutory federal income tax rate to the effective income
tax rate is as follows:
- --------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------
Statutory federal income tax rate 35% 34% 34%
State income taxes 1 9 5
Utilization of book net operating
loss carryforward (32) - -
Unrecognized net operating
loss carryforward - - 16
Reduction in tax rate resulting
from tax-exempt income (3) (9) (53)
Other 1 2 6
- --------------------------------------------------------------------------
2 36 8
Extraordinary credit-utilization of
net operating loss carryforward - (34) -
- --------------------------------------------------------------------------
2% 2% 8%
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
For financial reporting purposes, as of December 31, 1993 Citizens had available
approximately $18,000,000 of unbooked net operating loss carryforward.
The tax effects of significant items comprising the net deferred tax asset as of
December 31, 1993 were as follows:
- --------------------------------------------------------------------------
(in thousands)
- --------------------------------------------------------------------------
Deferred tax asset
Allowance for loan losses $25,962
Employee benefit plan expense 1,430
Other liabilities 1,958
- --------------------------------------------------------------------------
29,350
Deferred tax liability
Accelerated depreciation (3,486)
- --------------------------------------------------------------------------
25,864
Alternative minimum tax carryforward 6,852
- --------------------------------------------------------------------------
32,716
Valuation allowance (7,356)
- --------------------------------------------------------------------------
Net deferred tax asset $25,360
- --------------------------------------------------------------------------
The net deferred tax asset is included in other assets on the consolidated
balance sheet. Based on income for the year ended December 31, 1993, Citizens
utilized $22,200,000 of the net operating loss carryforward, which had the
effect of reducing the deferred tax asset valuation allowance.
The Omnibus Budget Reconciliation Act of 1993, (the "Act"), which was signed
into law on August 10, 1993, enacts certain income tax changes that affect
Citizens. Adjustments required to deferred tax assets or liabilities are
recognized as income tax expense or benefit as of the enactment date of the
Act. The provisions of the Act did not materially impact the financial
statements of Citizens for the year ended December 31, 1993.
14. RETIREMENT PLANS
The Bank has a noncontributory retirement plan covering all eligible full-time
employees. The Bank's funding policy is to contribute an amount that is at least
the minimum required by law. Subject to certain exceptions, at the normal
retirement age of 65, retirement income is equal to approximately 60% of the
average annual compensation reduced proportionately if the years of service are
fewer than 25. In no event, however, can an employee receive annual retirement
income in excess of $115,000. The Bank also had an unfunded, nonqualified
supplemental plan that provided for the retirement income that would have been
paid but for the annual limitation under the qualified retirement plan. The
supplemental plan was terminated in 1992, however, the Bank continues to be
liable for benefits. Interest cost on the projected benefit obligations under
the supplemental plan has been partially accrued since Citizens is contesting a
benefit claim.
19
-------------
Net pension cost consists of the following components:
- ----------------------------------------------------------------------------------------------------------------------------------
Retirement Plan Supplemental Plan
(in thousands) 1993 1992 1991 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
Service cost of benefits earned during the period $1,000 $ 997 $1,058 $ - $ - $ -
Interest cost on the projected benefit obligation 2,087 1,973 1,781 98 250 314
Actual return on plan assets (2,211) (2,046) (1,763) - - -
Amortization of net benefit obligation and deferred losses 255 144 12 - (71) 256
- ----------------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $1,131 $1,068 $1,088 $98 $179 $570
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
The following table sets forth the funded status and amounts recognized in
Citizens' Consolidated Balance Sheets for the retirement plan and the
supplemental plan at December 31, 1993, 1992 and 1991 and the major assumptions
used to determine these amounts:
- ----------------------------------------------------------------------------------------------------------------------------------
Retirement Plan Supplemental Plan
- ----------------------------------------------------------------------------------------------------------------------------------
(in thousands) 1993 1992 1991 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation
Vested benefits $24,997 $19,927 $16,635 $3,407 $3,120 $3,928
Nonvested benefits 376 357 362 - - -
- ----------------------------------------------------------------------------------------------------------------------------------
25,373 20,284 16,997 3,407 3,120 3,928
Effect of projected future compensation levels 3,682 5,202 5,673 - - 95
- ----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation 29,055 25,486 22,670 3,407 3,120 4,023
Plan assets at market value, primarily common stock,
U.S. Treasury and corporate securities 26,681 25,203 24,513 - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess (less than) of plan assets 2,374 283 (1,843) 3,407 3,120 4,023
Unrecognized net (loss) gain (1,356) 156 (369) (217) (58) (961)
Unrecognized net (obligation) asset (942) (1,084) 499 - 30 (150)
- ----------------------------------------------------------------------------------------------------------------------------------
Accrued (prepaid) pension cost included in the balance sheet $ 76 $ (645) $(1,713) $3,190 $3,092 $2,912
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Major assumptions:
Weighted average discount rate 7.25% 8.50% 8.50% 7.25% 8.50% 8.00%
Expected rate of increase in future compensation 4.00 6.00 6.00 - - 6.50
Weighted average expected long-term rate of return on assets 8.50 8.50 8.50 None None None
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
15. POSTRETIREMENT BENEFITS
Effective January 1, 1993, Citizens adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106"), which requires, among other things, that the expected
cost of providing postretirement health care benefits be accounted for on an
accrual basis during the years that the employees provide the necessary service.
Implementation of SFAS 106 results in increased annual expense and a gradual
recognition of an additional liability. The impact of the transition obligation,
or the unfunded and unrecognized obligation for all participants, was
approximately $3,100,000 at January 1, 1993, which is being amortized over 20
years. Employees retiring from Citizens on or after attaining age 55 who have
rendered at least 15 years of service are entitled to subsidized postretirement
health care coverage and, after 10 years of service, to life insurance,
respectively. The weighted average discount rate and the expected rate of
increase in future compensation are 7.25% and 6.50%, respectively.
Net periodic postretirement benefit cost for the year ended December 31 consists
of the following components:
- ---------------------------------------------------------------------------
(in thousands) 1993
- ---------------------------------------------------------------------------
Service cost of benefits attributed to service during the period $149
Interest cost on the accumulated postretirement
benefit obligation 280
Amortization of transition obligation 169
- ---------------------------------------------------------------------------
Net periodic postretirement benefit cost $598
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
The expense related to postretirement benefits of $258,000 and $211,000 for the
years ended December 31, 1992 and 1991 was accounted for on a cash basis.
20
- -------------
The following table sets forth the amounts recognized in Citizens' Consolidated
Balance Sheets for postretirement benefits at December 31:
- ---------------------------------------------------------------------------
(in thousands) 1993
- ---------------------------------------------------------------------------
Accumulated postretirement benefit obligation
Retirees $1,381
Eligible active participants 804
- ---------------------------------------------------------------------------
2,185
Other active participants 1,804
- ---------------------------------------------------------------------------
Accumulated postretirement benefit obligation 3,989
Unrecognized transition obligation (3,212)
Unrecognized net loss (487)
- ---------------------------------------------------------------------------
Accrued postretirement benefit cost included in the
balance sheet $ 290
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
For individuals who are not yet eligible for Medicare and for individuals who
are eligible for Medicare, the annual health cost trend rates assumed begin at
13.5% and 12.5%, respectively, for 1993. Both rates grade downward to 6%
ultimately in the year 2002. A 1% increase in the assumed health care cost trend
rate for each future year would increase the combined total of the service cost
component and the interest cost component of the net periodic postretirement
benefit obligation by approximately $68,000 and increase the accumulated
postretirement benefit obligation by approximately $432,000.
16. EMPLOYEE STOCK OWNERSHIP AND 401(K) PLANS
An Employee Stock Ownership Plan was in effect for eligible officers and
employees of the Bank. The plan was terminated by the Board of Directors in
1993. There were no contributions to the plan in 1993, 1992 and 1991.
Contributions to the plan were used to acquire common stock of Citizens in
accordance with the terms of the plan.
In 1993 the Bank established a 401(k) Plan retroactive to January 1, 1993.
Eligible officers and employees of the Bank may contribute up to 10% of their
total compensation. Various investment options are available to all
participating employees including Citizens common stock. The Bank provides a
matching contribution equal to the first 3% contributed by the employee. The
Bank's 1993 matching contribution was approximately $350,000. In addition, the
Bank has the right to grant a discretionary company contribution, depending upon
the financial results of the Bank and upon approval of the Board of Directors.
17. LEASES
Citizens is committed under long-term leases expiring at various dates.
Equipment was leased at an annual cost of $103,000 in 1993, $100,000 in 1992 and
$155,000 in 1991. Aggregate rental expense was $2,280,000 in 1993, $2,274,000 in
1992 and $2,387,000 in 1991. Aggregate rental income was $377,000 in 1993,
$364,000 in 1992 and $283,000 in 1991. Minimum rentals under long-term leases at
December 31, 1993 are as follows:
- -----------------------------------------------------------------
(in thousands) Rental Expense Rental Income
- -----------------------------------------------------------------
1994 $2,449 $219
1995 2,475 167
1996 2,334 97
1997 2,334 28
1998 1,826
1999 and later 28,529
- -----------------------------------------------------------------
18. STOCK INCENTIVE PLANS
The 1985 Stock Incentive Plan provides for the issuance of options to employees
of Citizens or its subsidiary. The exercise price for options granted under the
plan cannot be less than the fair market value of Citizens common stock on the
date of the grant. Options are granted, and the terms of options are
established, by the Board of Directors upon the recommendation of its
Compensation Committee. At December 31, 1993, Citizens had 1,527,840 shares of
authorized common stock reserved for issuance in connection with the 1985 Stock
Incentive Plan. All options shown were exercisable at the dates indicated in the
following table.
Transactions during the years ended December 31, 1993, 1992 and 1991 relating to
the 1985 Stock Incentive Plan are as follows:
- ---------------------------------------------------------------------
Number of Shares Price Per Share
- ---------------------------------------------------------------------
Balance, December 31, 1990 773,938 $7.61 to $14.41
Options that expired (66,811) 7.61 to 14.41
- ---------------------------------------------------------------------
Balance, December 31, 1991 707,127 7.61 to 14.41
Options granted 360,000 4.81 to 5.00
Adjustment for rights offering 361,824 1.40 to 4.03
Options that expired (26,715) 7.61 to 14.41
- ---------------------------------------------------------------------
Balance, December 31,1992 1,402,236 3.60 to 10.38
Options granted 95,000 6.88
Options exercised (25,856) 3.60 to 6.63
Options that expired (49,991) 3.60 to 10.38
- ---------------------------------------------------------------------
Balance, December 31, 1993 1,421,389 $3.60 to $10.38
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
The Incentive Stock Option Plan (1983) provides for the issuance of options to
employees of Citizens or its subsidiary. The option price cannot be less than
the fair market value of the common stock at the date of the grant; options
become exercisable as deter-
21
--------------
mined by Citizens' Compensation Committee. The Incentive Stock Option Plan
(1983) has been terminated, except that options granted continue to be governed
by the provisions of the plan. At December 31, 1993, Citizens had 19,287 shares
of authorized common stock reserved for issuance in connection with the
Incentive Stock Option Plan (1983). All options shown were exercisable at the
dates indicated in the following table.
Transactions during the years ended December 31, 1993, 1992 and 1991 relating to
the Incentive Stock Option Plan (1983) are as follows:
- ---------------------------------------------------------------------
Number of Shares Price Per Share
- ---------------------------------------------------------------------
Balance, December 31, 1990 23,164 $4.55 to $5.22
Options that expired (6,079) 4.55 to 5.22
- ---------------------------------------------------------------------
Balance, December 31, 1991 17,085 5.22
Adjustment for rights offering 6,468 1.46
Options that expired (457) 5.22
- ---------------------------------------------------------------------
Balance, December 31, 1992 23,096 3.76
Options exercised (3,809) 3.76
- ---------------------------------------------------------------------
Balance, December 31, 1993 19,287 $3.76
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
19. DIVIDEND LIMITATION
Under the written agreement between Citizens and the FRB, Citizens may not
declare and pay dividends on the common stock without the prior written approval
of the FRB and the Staff Director of the Division of Banking Supervision and
Regulation of the Board of Governors of the Federal Reserve System. Under the
MOU between the Bank and the OCC, the Bank may not declare and pay dividends to
Citizens without the prior written approval of the Director for Bank Analysis of
the OCC.
During the fourth quarter of 1993, Citizens requested prior regulatory approval
to declare and pay a February 1, 1994 quarterly dividend on Citizens common
stock in the amount of $.0425 per share and the Bank requested prior regulatory
approval to pay a dividend to Citizens to fund this February 1, 1994 common
stock dividend. The FRB and the OCC approved these requests.
20. COMMITMENTS AND CONTINGENCIES
At December 31, 1993, the Bank was required to maintain $49,415,000 on deposit
at the Federal Reserve Bank under routine banking regulations.
In 1990, two class action lawsuits against Citizens and certain of its present
and former directors and officers were filed in the United States District Court
for the District of New Jersey. These actions have been consolidated since they
involve common questions of law and fact. The plaintiffs allege that purchasers
of Citizens' stock during a certain period were victims of knowing or reckless
misrepresentations by the defendants concerning the financial condition of
Citizens. The court has certified October 4, 1989 through August 31, 1990 as the
class period. Specifically, the plaintiffs claim that the defendants knowingly
or recklessly stated that Citizens' allowance for loan losses at December 31,
1989 was adequate; overstated Citizens' income for 1989; and artificially
inflated the value of Citizens' stock. The plaintiffs claim similar
misrepresentations by the defendants with respect to the March 31, 1990 interim
financial statements of Citizens. Plaintiffs claim that the misrepresentations
of the defendants violate Section 10(b) of the Securities Exchange Act, Rule
10(b) of the Rules and Regulations promulgated thereunder, Section 20 of the
Exchange Act, and constitute common law fraud and negligent omissions. The
plaintiffs demand unspecified compensatory damages, punitive damages and costs
of the suits. Citizens believes that the allegations of wrongdoing by it and its
directors and officers are without merit and is vigorously defending the action.
However, in consideration of the uncertainties of litigation, preliminary
analyses of potential liability prepared by experts and the coverage of certain
defendants under a Directors and Officers liability insurance policy, management
has determined it prudent to accrue $875,000 for this matter during the year
ended December 31, 1993. Based upon these and other factors and advice received
from Citizens' legal counsel, management believes that the outcome of the
litigation will not result in an additional liability which would be material to
Citizens' consolidated results of operations or financial position.
Citizens is also subject to other claims and litigation that arise primarily in
the ordinary course of business. Based on information presently available and
advice received from legal counsel representing Citizens, it is the opinion of
management that the disposition or ultimate determination of such other claims
and litigation will not have a material adverse effect on the consolidated
financial position of Citizens.
21. CONDENSED FINANCIAL INFORMATION OF CITIZENS FIRST BANCORP, INC. (PARENT
COMPANY ONLY)
CONDENSED BALANCE SHEETS
- -----------------------------------------------------------------------------
December 31
(in thousands) 1993 1992
- -----------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 3,750 $ 6,171
Investment in common stock of subsidiary bank 205,819 167,502
Other assets, principally excess of cost over net
assets acquired, net 10,434 9,685
- -----------------------------------------------------------------------------
$220,003 $183,358
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Dividends payable $ 2,162 $ -
Accrued expenses and other liabilities 1,826 1,040
Long-term debt 18,990 18,990
Shareholders' equity 197,025 163,328
- -----------------------------------------------------------------------------
$220,003 $183,358
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
22
- --------------
CONDENSED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------
For the Years Ended December 31
(in thousands) 1993 1992 1991
- -----------------------------------------------------------------------------
INCOME
Dividends from subsidiary bank $2,162 $ - $ -
Interest income 105 61 412
- -----------------------------------------------------------------------------
2,267 61 412
- -----------------------------------------------------------------------------
EXPENSES
Interest expense 1,282 1,282 1,281
Amortization of intangible assets 1,550 1,550 1,550
Other 1,445 146 1,511
- -----------------------------------------------------------------------------
4,277 2,978 4,342
- -----------------------------------------------------------------------------
Loss before undistributed net
income of subsidiary bank (2,010) (2,917) (3,930)
Equity in undistributed net
income of subsidiary bank 38,317 12,389 6,886
- -----------------------------------------------------------------------------
NET INCOME $36,307 $9,472 $2,956
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------
For the Years Ended December 31
(in thousands) 1993 1992 1991
- -----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $36,307 $9,472 $2,956
Adjustments to reconcile net
income to net cash provided
from (used in) operating activities:
Equity in undistributed net
(income) of subsidiary bank (38,317) (12,389) (6,886)
Amortization of intangible assets 1,550 1,550 1,550
Changes in operating assets and
liabilities:
Increase in dividend receivable
from subsidiary bank (2,162) - -
(Increase) decrease in other assets (138) 37 117
Increase (decrease) in other
liabilities 2,949 (9) 191
- -----------------------------------------------------------------------------
Net cash flows provided from
(used in) operating activities 189 (1,339) (2,072)
- -----------------------------------------------------------------------------
FINANCING ACTIVITIES
Investments in subsidiary bank (2,162) (62,306) (4,000)
Proceeds from the issuance of
common stock 119 67,306 695
Cash dividends (567) - -
- -----------------------------------------------------------------------------
Net cash flows (used in)
provided from financing
activities (2,610) 5,000 (3,305)
- -----------------------------------------------------------------------------
Net (decrease) increase in cash and cash
equivalents (2,421) 3,661 (5,377)
Cash and cash equivalents, beginning
of year 6,171 2,510 7,887
- -----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $3,750 $6,171 $2,510
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
22. QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------------------------------------------------
Quarter Ended
- -------------------------------------------------------------------------------------------
(in thousands, except per 1993
share amounts) Mar. 31 June 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------------------------------
Total interest income $41,658 $41,042 $41,210 $42,435
Total interest expense 16,672 15,605 15,242 14,967
Net interest income 24,986 25,437 25,968 27,468
Provision for loan losses 5,000 4,500 3,500 4,000
Income before cumulative effect
of change in accounting
principle 7,691 6,525 6,661 8,262
Net income 14,859 6,525 6,661 8,262
Income per common share
Primary
Income before cumulative
effect of change in
accounting principle $ .15 $ .13 $ .13 $ .16
Net income .30 .13 .13 .16
Fully diluted
Income before cumulative
effect of change in
accounting principle .15 .12 .13 .16
Net income .29 .12 .13 .16
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Quarter Ended
- --------------------------------------------------------------------------------------------
(in thousands, except per 1992
share amounts) Mar. 31 June 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------------------------------
Total interest income $44,901 $44,325 $42,728 $43,340
Total interest expense 24,263 21,795 19,606 18,062
Net interest income 20,638 22,530 23,122 25,278
Provision for loan losses 6,000 6,000 6,000 5,000
Income before extraordinary
credit 523 1,222 1,580 2,911
Net income 523 1,506 3,154 4,289
Income per common share
Primary
Income before
extraordinary credit $ .02 $ .06 $ .07 $.06
Net income .02 .07 .14 .09
Fully diluted
Income before
extraordinary credit .02 .06 .07 .06
Net income .02 .07 .14 .09
- --------------------------------------------------------------------------------------------
23
-------------
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
Citizens First Bancorp, Inc.
Glen Rock, New Jersey
We have audited the accompanying consolidated balance sheets of Citizens First
Bancorp, Inc. and Subsidiary ("Citizens") as of December 31, 1993 and 1992, and
the related consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1993. These consolidated financial statements are the responsibility of
Citizens' management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Citizens First Bancorp, Inc. and
Subsidiary as of December 31, 1993 and 1992, and the result of their operations
and their cash flows for each of the three years in the period ended
December 31, 1993.
As discussed in Note 13 to the consolidated financial statements, Citizens
changed its method of accounting for income taxes in 1993 to conform with
Statement of Financial Accounting Standards No. 109.
/s/ DELOITTE & TOUCHE
Parsippany, New Jersey
January 18, 1994
24
- -------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This analysis, which should be read in conjunction with the financial statements
and supplemental statistical data, is being presented in order to direct the
attention of our shareholders to those trends we believe to be meaningful in
order to understand Citizens' operations and financial condition.
FINANCIAL HIGHLIGHTS
Citizens reported net income of $36,307,000 for 1993 compared with $9,472,000
reported for 1992. By comparison, the net income in 1991 was $2,956,000. On a
fully diluted per share basis, the net income was $.71 for 1993, as compared
with $.32 reported for 1992 and $.13 in 1991.
On December 21, 1993, the Board of Directors of Citizens, with the approval of
the Federal Reserve Bank of New York ("FRB"), declared the first dividend on the
Company's common stock in three and one-half years. The dividend, in the amount
of $.0425 per share, is payable on February 1, 1994 to shareholders of record at
the close of business on January 14, 1994. In addition, Citizens is current in
preferred stock dividend payments and is no longer required to obtain prior
written approval from the FRB to declare and pay quarterly preferred stock
dividends.
At December 31, 1993, Citizens' assets were $2,566,347,000. This reflects an
increase of $59,268,000, or 2.4%, compared with 1992. Total assets at
December 31, 1992 of $2,507,079,000 represented an increase of $1,018,000 over
December 31, 1991. Deposits increased to $2,320,975,000 or 1.0% in 1993 from
1992. December 31, 1992 deposits were $2,297,929,000, a decrease of 2.7% or
$63,985,000 compared to 1991. Net loans amounted to $1,717,046,000 at
December 31, 1993, an increase of 5.4% from the balance of $1,629,131,000 at
December 31, 1992, which was 1.6% lower than the December 31, 1991 balance. The
securities portfolio amounted to $551,943,000 at year-end 1993, an increase of
$65,850,000 over the previous year-end balance of $486,093,000. The 1992
securities portfolio was 9.0% higher than the December 31, 1991 amount. Total
shareholders' equity increased by 20.6% to $197,025,000 in 1993, compared to an
increase of 88.7% in 1992. The 1993 increase reflects net income retained after
providing for the payment of dividends on common and preferred stock. The
increase in 1992 reflects the net proceeds of a rights offering of $67,306,000
and net income retained.
Nonperforming assets at December 31, 1993 were $109,194,000 or 5.98% of total
loans and foreclosed real estate, compared with $164,952,000, or 9.33% at
December 31, 1992. For further information, see the discussion of the allowance
for loan losses and asset quality, beginning on page 30.
Return on average assets is an important measure of profitability. Citizens'
return on average assets, before extraordinary credit and the cumulative effect
of a change in accounting principle, was 1.17% in 1993 compared with .26% in
1992 and .12% for 1991. Citizens' overall return on average assets was 1.46% in
1993 compared with .39% and .12% in 1992 and 1991, respectively.
The return on average shareholders' equity, before extraordinary credit and the
cumulative effect of a change in accounting principle, was 16.05% for 1993
compared with 5.85% for 1992 and 3.50% for 1991. The overall return on average
shareholders' equity was 20.00% for 1993 compared with 8.89% and 3.50% for 1992
and 1991, respectively.
RESULTS OF OPERATIONS
Factors contributing to Citizens' improved 1993 performance include an increase
in net interest income of $12,291,000, or a 13.4% improvement compared to 1992.
Moreover, there was a significant improvement of $4,990,000, or 33.1%, in
non-interest income, exclusive of gains on the sales of securities in 1993,
compared to 1992. In addition, in 1993 Citizens recorded a credit of $7,168,000,
or $.14 on a per share basis, resulting from the adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Citizens' future profitability largely depends on its ability to continue
to increase net interest income, and to further reduce nonperforming assets and
the provision for loan losses, which are influenced by the condition of the real
estate market and the local economy. In addition, Citizens continues to
emphasize diversification in the loan portfolio, increasing sources of
non-interest income and managing of operating expenses.
The components of Citizens' 1992 net income included an increase in net interest
income of $12,762,000, or a 16.2% improvement compared to 1991. Furthermore,
1992 included an improvement in non-interest income of $3,268,000 or 27.7%,
exclusive of loan and securities sales, and a $1,985,000 reduction of operating
expenses.
25
-------------
NET INTEREST INCOME
Net interest income is the interest earned on loans and other earning assets
less interest paid on deposits and borrowed money. Interest exempt from federal
taxation has been restated to a taxable-equivalent basis, which places
tax-exempt income and yields on a comparable basis with taxable income to
facilitate analysis. In calculating loan yields, the applicable loan fees have
been included in interest income, and nonperforming loans are included in the
average loan balances. Net interest income on a taxable-equivalent basis was
$105,311,000 for 1993, an increase of 13.0% from the $93,164,000 reported for
1992. In comparison, net interest income for 1992 increased 13.8% from the 1991
amount of $81,883,000.
Lower interest rates in 1993 resulted in a lower yield on earning assets of
7.50% in 1993 compared to 8.15% and 9.40% in 1992 and 1991, respectively. This
decrease in yield was caused partially by changes in the prime rate, which
averaged 6.00% in 1993, compared with 6.27% in 1992 and 8.57% in 1991. With many
loans tied to a variable interest rate, the overall loan yield decreased to
8.50% in 1993 from 9.10% in 1992 and 10.10% in 1991. The decrease in the yield
on total earning assets was offset by the decrease in the average rate paid on
total interest-bearing liabilities. The average rate paid on interest-bearing
liabilities was 3.28% in 1993 compared to 4.26% and 6.17% in 1992 and 1991,
respectively. As a result, the net yield on average earning assets increased to
4.71% for 1993 from 4.29% for 1992 and 3.60% for 1991.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The following table presents an analysis of the impact on interest income and
interest expense resulting from changes in average volumes (balances) and rates
for the years ended December 31, 1993 and 1992. The volume effect has been
determined by applying the average rate in the earlier period to the change in
average balance in the later period, as compared with the earlier period. The
balance of the change in interest income or expense and net interest income has
been attributed to the change in average rate. The rate/volume analysis below
has been prepared on a taxable-equivalent basis.
- ---------------------------------------------------------------------------------------------------------------------------------
1993 COMPARED WITH 1992 1992 Compared with 1991
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) DUE TO A CHANGE IN Increase (decrease) due to a change in
- ---------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) VOLUME RATE TOTAL Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------------------------
Interest earned on
Net loans $ (308) $ (9,875) $(10,183) $(14,437) $(16,475) $(30,912)
Interest-bearing balances with banks 3 (1) 2 13 (10) 3
Federal Funds sold (264) (456) (720) (60) (2,266) (2,326)
Trading account securities - (12) (12) (13) (15) (28)
Taxable investment securities 4,069 (2,468) 1,601 4,985 (5,282) (297)
Tax-exempt investment securities 634 (415) 219 (3,224) 30 (3,194)
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income 4,134 (13,227) (9,093) (12,736) (24,018) (36,754)
- ---------------------------------------------------------------------------------------------------------------------------------
Interest paid on
Savings deposits 1,923 (6,994) (5,071) 3,237 (16,885) (13,648)
Time deposits (6,811) (9,343) (16,154) (16,840) (17,189) (34,029)
Short-term borrowings 27 (39) (12) (181) (175) (356)
Long-term debt (3) - (3) (3) 1 (2)
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense (4,864) (16,376) (21,240) (13,787) (34,248) (48,035)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net interest income $ 8,998 $ 3,149 $ 12,147 $ 1,051 $ 10,230 $ 11,281
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Percent increase in net interest income over the
prior period 13.0% 13.8%
- ---------------------------------------------------------------------------------------------------------------------------------
26
- -------------
In 1993, net interest income, on a taxable-equivalent basis, increased
$12,147,000. This increase in net interest income was produced by a $21,240,000
decrease in interest expense offset by a $9,093,000 reduction in interest
income. The declines in both interest income and interest expense were due to
the effect of (i) the overall lower interest rate environment that prevailed
during 1993 compared with that of 1992, particularly the decrease in short-term
interest rates and the resultant repricing and reinvestment of assets and
liabilities at lower rates and (ii) a decline in the average balance of
interest-bearing liabilities combined with an increase in the average balance of
interest-earning assets during 1993 compared with 1992.
Moderate loan demand in various categories of the loan portfolio coupled with
scheduled amortizations has caused a decrease in the average balance of the loan
portfolio and, correspondingly, resulted in an increase in the average balance
in the securities portfolio. In order to provide the necessary liquidity in
anticipation of an increase in loan demand, Citizens purchased securities that
are generally more marketable and of shorter average maturity than loans. The
changes in balance sheet components have affected net interest income in two
significant ways: through a change in mix from generally higher yielding loans
to generally lower yielding securities; and also through the impact of the
decline in short-term interest rates on securities. Consequently, as assets
matured and funds were deployed in shorter maturities, the average rates earned
on assets decreased compared with the 1992 average rates.
In 1992, net interest income, on a taxable-equivalent basis, increased
$11,281,000. This increase in net interest income was attributable to a
$48,035,000 decrease in interest expense partially offset by a $36,754,000
decrease in interest income. The decrease in interest income was due primarily
to the reduction in loan balances and interest rates, while interest expense
decreased due to lower rates paid on time and savings deposits and the reduction
in time deposit balances.
ASSET AND LIABILITY MANAGEMENT
The principal components of Citizens' asset and liability management process
are: the management of interest rate sensitivity to protect net interest income
from the effects of adverse movements in the level of interest rates and the
maintenance of an adequate liquidity position. Interest rate risk and liquidity
are managed together since actions taken with respect to one can often influence
the other.
Net interest income is the primary determinant of Citizens' profitability.
Citizens' Asset and Liability Committee ("ALCO"), which meets semi-monthly, is
concerned with managing interest rate risk by reducing the sensitivity of its
earnings to interest rate fluctuations and achieving a better matching of the
maturities and interest rate sensitivities of its assets and liabilities. ALCO
analyzes the repricing characteristics of assets and supporting liabilities in
evaluating its exposure to interest rate risk. Based upon this analysis and the
anticipated direction of interest rates, ALCO establishes guidelines as to the
magnitude of the gap between interest-earning assets and interest-bearing
liabilities and the investment strategy for Citizens' funds.
27
-------------
The following table presents Citizens' balance sheet interest sensitivity based
on maturities and interest rate adjustments due to occur within the following
time periods:
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993 December 31, 1992
- -----------------------------------------------------------------------------------------------------------------------------------
AFTER ONE AFTER After One After
ONE YEAR THROUGH FIVE One Year through Five
(dollars in thousands) OR LESS FIVE YEARS YEARS TOTAL or Less Five Years Years Total
- -----------------------------------------------------------------------------------------------------------------------------------
Net loans $ 877,727 $543,971 $ 295,348 $1,717,046 $ 900,611 $472,430 $256,090 $1,629,131
Interest-bearing balances with banks 500 - - 500 500 - - 500
Federal Funds sold 50,000 - - 50,000 105,000 - - 105,000
Trading account securities - - - - 1,514 - - 1,514
Taxable investment securities 242,835 272,009 11,576 526,420 174,923 305,892 3,137 483,952
Tax-exempt investment securities 22,034 2,929 560 25,523 230 911 1,000 2,141
- -----------------------------------------------------------------------------------------------------------------------------------
Total earnings assets 1,193,096 818,909 307,484 2,319,489 1,182,778 779,233 260,227 2,222,238
Other assets - - 246,858 246,858 - - 284,841 284,841
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $1,193,096 $818,909 $ 554,342 $2,566,347 $1,182,778 $779,233 $545,068 $2,507,079
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Savings deposits $ 963,814 $130,895 $ - $1,094,709 $ 894,847 $129,549 $ - $1,024,396
Time deposits 591,007 174,028 36,993 802,028 692,940 188,458 4,887 886,285
Short-term borrowings 6,795 - - 6,795 8,215 - - 8,215
Long-term debt 50 150 19,040 19,240 50 150 19,090 19,290
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,561,666 305,073 56,033 1,922,772 1,596,052 318,157 23,977 1,938,186
Other liabilities and shareholders' equity - - 643,575 643,575 - - 568,893 568,893
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,561,666 $305,073 $ 699,608 $2,566,347 $1,596,052 $318,157 $592,870 $2,507,079
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Period gap $ (368,570) $513,836 $(145,266) $ - $ (413,274) $461,076 $(47,802)$ -
Cumulative gap (368,570) 145,266 - - (413,274) 47,802 - -
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios:
Interest sensitive assets to total assets 46.5% 47.2%
Interest sensitive liabilities to total liabilities and shareholders' equity 60.9 63.7
Interest sensitive assets to interest sensitive liabilities 76.4 74.1
- -----------------------------------------------------------------------------------------------------------------------------------
Citizens' one-year interest sensitivity gap was a negative $368,570,000 at
December 31, 1993. A negative gap indicates that interest sensitive liabilities
are greater than interest sensitive assets. As a practical matter, changes in
the level of interest rates do not affect all categories of assets and
liabilities equally or simultaneously. In addition, assets and liabilities that
can reprice within the same period may not reprice at the same time or to the
same extent. The gap presents a one-day position, while changes in the level of
interest sensitive assets and liabilities occur daily as Citizens adjusts its
interest rate sensitivity. Due to Citizens' strong liquidity position, it has
the ability to modify the interest rate sensitivity gap to mitigate the effect
of an upturn in interest rates on net interest income. Interest rate-sensitive
assets were 76.4% of interest rate-sensitive liabilities at December 31, 1993,
compared with 74.1% at December 31, 1992. The percentage increase in 1993
resulted from the increase in the amount of U.S. Treasury securities maturing
within one year.
Liquidity management provides Citizens with the ability to meet the cash flow
requirements of depositors wanting to withdraw funds and of borrowers wanting to
be assured that their credit needs will be met. Citizens also funds its own
operations and provides management with the flexibility to modify Citizens'
interest rate sensitivity position as the economic environment requires.
Management considers Citizens' liquidity position to be sufficient to meet its
foreseeable funding needs. Liquidity is provided through a variety of sources.
One of the most important elements in the overall liquidity of Citizens is the
core deposit base of its local marketplace. Liquidity can also be obtained by
converting readily marketable assets to cash, including investment securities
with maturities of less than one year, securities available for sale and other
short-term investments such as interest-bearing deposits with banks and Federal
Funds sold. At December 31, 1993, 48.0%, or $264,869,000, of Citizens'
securities portfolio was due to mature within one year. In addition to its
short-term investment securities, Citizens had $50,000,000 in overnight Federal
Funds sold, providing additional liquidity.
Other sources of liquidity include funds received from the repayment of loans as
well as the ability of Citizens to package and sell residential mortgage loans
in the secondary market. In addition, as a member of the Federal Reserve System,
the Bank has access to the discount window of the Federal Reserve. The purpose
of the discount window is to make available to financial institutions a source
of liquidity when other sources of funding are not available or feasible. The
Bank has not borrowed at the discount window during the past five years.
28
- -------------
NON-INTEREST INCOME AND OPERATING EXPENSES
The table below sets forth, in comparative form, the major components of
non-interest income and operating expenses for each of the three years in the
period ended December 31, 1993:
- ----------------------------------------------------------------------------------------------------------------
For the Years Ended December 31 Percent Increase (Decrease)
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1993 1992 1991 1993 1992
- ----------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Trust department income $ 3,932 $ 3,578 $ 3,316 9.9% 7.9%
Service charges on deposit accounts 9,849 6,341 3,796 55.3 67.0
Credit card merchant income 2,490 2,334 2,282 6.7 2.3
Gain on sale of securities 5,127 868 7,530 490.7 (88.5)
Gain on sale of loans - - 5,868 - (100.0)
Safe deposit rental income 988 969 860 2.0 12.7
Other operating income 2,790 1,837 1,537 51.9 19.5
- ----------------------------------------------------------------------------------
$25,176 $15,927 $25,189 58.1% (36.8)%
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Salaries and employee benefits $36,560 $33,806 $34,162 8.1% (1.0)%
Net occupancy 6,819 6,895 6,954 (1.1) (.8)
Furniture and equipment 3,298 3,164 3,300 4.2 (4.1)
Loan credit and collection 3,197 3,832 3,229 (16.6) 18.7
Advertising and public relations 1,758 1,211 1,390 45.2 (12.9)
Insurance premiums on deposits 5,992 5,225 5,265 14.7 (.8)
Credit card merchant expense 1,993 1,946 1,786 2.4 9.0
Other operating expenses 11,684 11,888 12,895 (1.7) (7.8)
- ----------------------------------------------------------------------------------
Operating expenses excluding foreclosed
real estate expense, net 71,301 67,967 68,981 4.9 (1.5)
- ----------------------------------------------------------------------------------
Foreclosed real estate expense, net 11,134 6,840 7,811 62.8 (12.4)
- ----------------------------------------------------------------------------------
$82,435 $74,807 $76,792 10.2% (2.6)%
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Non-interest income increased 58.1% to $25,176,000 in 1993 from $15,927,000 in
1992. In 1993, Citizens recorded a gain on sale of securities of $5,127,000, an
increase of $4,259,000 compared with 1992. In addition, 1993 included $9,849,000
of service charges on deposit accounts, a $3,508,000 increase over 1992. The
1993 increase in service charges was due to implementing several fee enhancement
programs and introducing new products to customers. Other operating income
increased 51.9% due primarily to commissions generated by the sale of annuities
and mutual funds which generated $1,125,000 of fee income. Expanded marketing
efforts in the Trust Division enhanced its business base and generated increased
fee income. In 1992, Citizens recorded gain on sale of securities of $868,000, a
decrease of $6,662,000 from the prior year, and an increase of $2,545,000 in
service charges on deposit accounts. Other categories of non-interest income
increased as a result of continued growth of fee-based services.
OPERATING EXPENSES
SALARIES AND EMPLOYEE BENEFITS EXPENSE - The 1993 salaries and employee benefits
expense of $36,560,000 reflects an 8.1% increase over 1992 resulting from salary
increases and the increased cost of employee benefits, including postretirement
benefits due to the adoption of Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other than Pensions"
("SFAS 106"). The 1992 amount of $33,806,000 reflected a 1.0% decrease from 1991
due to staff reductions, net of salary increases for employees who were not
officers. The number of full-time equivalent employees at year-end 1993 was 878,
down from 881 in 1992 and 921 in 1991.
ADVERTISING AND PUBLIC RELATIONS EXPENSE - Expenses of $1,758,000 for
advertising and public relations increased 45.2% from $1,211,000 in 1992
reflecting additional advertising and sales promotion efforts. By comparison,
advertising and public relations expense in 1992 decreased 12.9% over the 1991
total of $1,390,000.
29
-------------
INSURANCE PREMIUMS ON DEPOSITS - The increase of 14.7% in 1993 resulted from an
increase in the insurance premium rates assessed, coupled with an increase in
the deposit base. The nominal decrease in 1992 resulted from the 2.7% decrease
in deposit balances offset by increased premium rates.
FORECLOSED REAL ESTATE EXPENSE - This expense category consists of provision for
losses on foreclosed real estate and direct operating expenses such as legal
fees, taxes and appraisals. The expense levels are indicative of the average
balances of foreclosed real estate during the years. The 1993 increase includes
approximately $3,000,000 of expenses and charge-offs resulting from the
previously mentioned bulk sale of loans and foreclosed real estate.
INCOME TAX EXPENSE
Effective January 1, 1993, Citizens adopted SFAS 109, which requires a change
from the "deferred method" to the "liability method" of accounting for income
taxes. The cumulative effect of adopting SFAS 109 on years prior to 1993
aggregated to an increase in net income of $7,168,000 due to the accelerated
recognition of the deferred tax assets, net of a valuation allowance.
Income tax expense was $461,000 for 1993, compared with $3,452,000 for 1992
which was offset by an extraordinary credit from the utilization of net
operating loss carryforward of $3,236,000. Citizens' effective tax rate was 1.6%
for 1993 compared with effective tax rates of 2.0% and 7.7% for the years 1992
and 1991, respectively, which were less than the statutory federal income tax
rate of 35.0% for 1993 and 34.0% for the years 1992 and 1991. The difference
between the statutory and the effective rates was primarily attributable to the
utilization of the net operating loss carryforward and the tax-exempt status of
interest income on tax-exempt loans and investment securities. For financial
reporting purposes, as of December 31, 1993 Citizens had available approximately
$18,000,000 of unbooked net operating loss carryforward represented by a
$7,356,000 deferred tax asset valuation allowance.
SECURITIES PORTFOLIO
The securities portfolio at December 31, 1993 was $551,943,000 representing an
increase of 13.5% from the balance of $486,093,000 at December 31, 1992. The
securities portfolio increased in 1992 by 9.0% from the 1991 total. The yields
on the total investment portfolio (on a taxable-equivalent basis) were 5.1%,
5.6% and 7.2% for the years 1993, 1992 and 1991, respectively. At December 31,
1993, tax-exempt investment securities amounted to $25,522,000, up significantly
from the balance of $2,141,000 at December 31, 1992. The net operating loss
carryforward position of Citizens had previously limited the attractiveness of
owning tax-exempt securities.
The following table sets forth the carrying amount of investment securities and
securities available for sale at December 31 for the years indicated:
(in thousands) 1993 1992 1991
- ---------------------------------------------------------------------------
INVESTMENT SECURITIES:
U.S. Treasury securities $ 50,070 $157,644 $311,401
U.S. Government agencies 47,582 86,240 57,284
States and political subdivisions 25,522 2,141 4,555
Other 11,736 10,006 7,593
- ---------------------------------------------------------------------------
134,910 256,031 380,833
- ---------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities 296,236 230,062 65,158
U.S. Government agencies 120,797 - -
- ---------------------------------------------------------------------------
417,033 230,062 65,158
- ---------------------------------------------------------------------------
Total securities portfolio $551,943 $486,093 $445,991
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
In 1993, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115") which is effective for fiscal years beginning
after December 15, 1993. SFAS 115 establishes accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. As a result of adopting SFAS 115 in the
first quarter of 1994, Citizens will mark-to-market securities designated as
available for sale in its securities portfolio. Had Citizens adopted SFAS 115 at
January 1, 1994, the mark-to-market adjustment on the existing available for
sale portfolio would have been $1,583,000, which would have required the
recording of the adjustment as an increase in shareholders' equity of
approximately $950,000, net of income taxes, in accordance with SFAS 115.
LOANS
At December 31, 1993, net loans totaled $1,717,046,000, an increase of
$87,915,000, or 5.4% from the previous year-end. The primary reasons for the
increase were the growth in the residential real estate portfolio and a
$30,000,000 purchase of Term Federal Funds at year-end 1993. Term Federal Funds
represent short-term loans made to other banks. The following table sets forth
information on loans outstanding by major category at December 31 for the years
indicated:
30
-------------
At December 31 (in thousands) 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------
Commercial and industrial $ 353,775 $ 326,199 $ 322,999 $ 450,161 $ 547,503
Real estate-commercial 745,732 719,595 724,703 693,720 655,385
Real estate-residential 352,937 302,630 279,094 286,372 296,207
Real estate-construction 51,545 77,626 112,726 200,644 303,522
Consumer 276,845 278,919 292,535 369,096 355,034
- ---------------------------------------------------------------------------------------------------------
Total loans 1,780,834 1,704,969 1,732,057 1,999,993 2,157,651
Less: Allowance for loan losses 63,788 75,838 75,597 101,209 18,128
- ---------------------------------------------------------------------------------------------------------
Net loans $1,717,046 $1,629,131 $1,656,460 $1,898,784 $2,139,523
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
COMMERCIAL AND INDUSTRIAL LOANS
At December 31, 1993, commercial loans, including Term Federal Funds sold,
amounted to $353,775,000, an increase of 8.5% from the prior year-end total of
$326,199,000. The increase is attributable to the purchase of $30,000,000 of
Term Federal Funds at year-end 1993.
REAL ESTATE LOANS
At December 31, 1993, commercial mortgages totaled $745,732,000, an increase of
3.6% from the previous year-end total of $719,595,000 reflecting increased
demand. Generally, commercial mortgages have maturities of 5 years or less,
although amortization is based on longer terms. Usually, loans are renewed at
maturity at the then prevailing rate but with shortened amortization schedules.
At December 31, 1993, residential mortgage loans amounted to $352,937,000, an
increase of 16.6% from the $302,630,000 balance at December 31, 1992. The
primary reasons for the increase in this category were a continued increase in
the demand for refinancing and origination of residential mortgages and the
additional emphasis on retail lending.
At December 31, 1993, construction mortgage loans totaled $51,545,000, a
reduction of 33.6% from the previous year-end total of $77,626,000. The
reduction in this category was primarily due to the strategy of de-emphasizing
construction loans as well as the build-out and completion of certain
construction projects.
CONSUMER LOANS
These loans primarily represent loans to individuals on an installment or
revolving-credit basis. Although installment loan balances have decreased,
management continues to emphasize the origination of consumer loans, which
totaled $276,845,000 at year-end 1993, a decrease of .7% over the previous
year-end total of $278,919,000.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a valuation reserve established through charges
to income. Loan losses are charged against the allowance when management
believes that the collectibility of all or a portion of the principal is
unlikely. This evaluation is based upon identification of loss elements and
known facts which are reasonably determined and quantified. If, as a result of
loans charged-off or an increase in the level of portfolio risk characteristics,
the allowance is below the level considered by management to be sufficient to
absorb future losses on outstanding loans and commitments, the provision for
loan losses is increased to the level considered necessary to provide an
adequate allowance.
In the opinion of management, the allowance for loan losses at December 31, 1993
was adequate to absorb possible future losses on existing loans and commitments.
On a monthly basis management reviews the adequacy of the allowance. That
process includes a review of all delinquent, nonaccrual and other loans
identified as needing additional review and analysis. The evaluation of loans in
these categories involves an element of subjectivity but the process takes into
consideration the risk of loss presented by the loans and potential sources of
repayment, including collateral security. The evaluation is based upon a credit
rating system that conforms to regulatory classification definitions that are
extensively tested by management and the internal loan review department.
Consideration is also given to historical data, trends in overall delinquencies,
concentration of loans by industry and current economic conditions that may
result in increased delinquencies, as well as other relevant factors.
At December 31, 1993, the allowance for loan losses was $63,788,000 a decrease
of 15.9% from the $75,838,000 reported for 1992. The provision for loan losses
was $17,000,000 in 1993 and $23,000,000 in 1992. The allowance for loan losses
to total loans was 3.6%, 4.5% and 4.4% at December 31, 1993, 1992 and 1991,
respectively. The allowance for loan losses to nonperforming loans was 99.4% at
December 31, 1993 compared to 74.1% and 61.2% at December 31, 1992 and 1991,
respectively. Net charge-offs for the year ended December 31, 1993 were
31
-------------
$29,050,000, compared with $22,759,000 for 1992. The increase in net charge-offs
was primarily attributable to a charge to the allowance for loan losses of
approximately $15,000,000 related to a bulk sale of loans and foreclosed real
estate. Excluding this sale, the decline in net charge-offs of $8,709,000 in
1993 reflected an improved stabilization of collateral values.
In 1993, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan"
("SFAS 114") which is effective for fiscal years beginning after December 15,
1994. SFAS 114 requires that impaired loans, as defined, be measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. Citizens has not evaluated the impact of adopting SFAS 114 on the
financial statements.
ASSET QUALITY
Management has identified the following categories as risk elements: (i)
nonperforming assets, which include nonperforming loans and foreclosed real
estate (other real estate owned and insubstance foreclosures), (ii) loans
contractually past due 90 days or more as to principal or interest payments that
continue to accrue interest because the loans are well secured and in the
process of collection and (iii) other troubled debt restructurings that provide
more favorable rates or terms to the borrower to facilitate the eventual full
collection of principal. Accordingly, the risk element classification does not
necessarily mean nonearning, but rather that it is probable that the entire
interest will not be received within the original contractual term.
The following table sets forth the totals of the risk elements at the dates
indicated:
RISK ELEMENTS
December 31 (dollars in thousands) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------
Nonperforming assets
Commercial and industrial $ 18,632 $ 32,311 $ 34,836 $ 51,579 $ 1,268
Real estate-commercial and construction 36,373 63,825 79,830 91,402 13,040
Real estate-residential 5,327 2,596 4,079 7,796 -
Consumer 3,331 3,226 1,218 1,570 154
Nonaccrual troubled debt restructurings 528 454 3,605 - -
- -------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 64,191 102,412 123,568 152,347 14,462
Foreclosed real estate 45,003 62,540 88,988 99,546 713
- -------------------------------------------------------------------------------------------------------------------
Total nonperforming assets 109,194 164,952 212,556 251,893 15,175
- -------------------------------------------------------------------------------------------------------------------
Accruing loans past due 90 days or more as
to principal or interest payments
Commercial and industrial 582 1,140 856 4,306 13,853
Real estate-commercial and construction 382 2,551 3,764 29,797 46,115
Real estate-residential 2,144 1,959 1,170 781 1,042
Consumer 1,413 643 1,176 1,768 2,266
- -------------------------------------------------------------------------------------------------------------------
Total loans past due 90 days or more 4,521 6,293 6,966 36,652 63,276
- -------------------------------------------------------------------------------------------------------------------
Other troubled debt restructurings 35,335 35,447 29,596 - -
- -------------------------------------------------------------------------------------------------------------------
Total risk elements $149,050 $206,692 $249,118 $288,545 $78,451
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Total nonperforming loans as a percentage
of total loans 3.60% 6.01% 7.13% 7.62% .67%
Total nonperforming assets as a percentage
of total loans and foreclosed real estate 5.98 9.33 11.67 12.00 .70
Total risk elements as a percentage of total
loans and foreclosed real estate 8.16 11.69 13.68 13.74 3.63
- -------------------------------------------------------------------------------------------------------------------
32
- -------------
As seen in the table, much of the concentration of risk elements is in the real
estate category. Future levels of risk elements will continue to be dependent on
economic conditions, and if the weakness in the New Jersey real estate market
persists, risk elements may increase. Citizens updates appraisals on assets
secured by real estate, particularly those categorized as risk elements or
otherwise internally classified as having some degree of credit impairment.
In addition to the loans included in the risk elements table, Citizens has
identified approximately $30,000,000 of potential problem loans at December 31,
1993. These loans, as well as the loans included in risk elements, have been
considered in the analysis of the adequacy of the allowance for loan losses.
Interest income that would have been recorded for the year ended December 31,
1993 if nonaccrual loans had been current was $8,059,000, including the reversal
of previously accrued interest, compared with $10,884,000 for the prior year.
Nonaccrual loans, on which income is earned on a cash basis, amounted to
$4,169,000 at December 31, 1993 and $6,305,000 at December 31, 1992. Interest
earned on all cash basis loans during the year ended December 31, 1993 amounted
to $820,000, compared to $1,086,000 for the year ended December 31, 1992.
Management believes that the allowance for loan losses is adequate to absorb
possible future losses on existing loans and commitments. In management's
opinion, the provision for loan losses reflects the amount deemed appropriate to
produce an allowance for loan losses adequate to meet the risk of loss
characteristics of the loan portfolio at December 31, 1993.
At December 31, 1993, the loan portfolio had no concentration of loans exceeding
10% of total loans in specialized industries other than residential and
commercial real estate, and was primarily comprised of loans made in Citizens'
market area. In addition, Citizens has no foreign loans.
DEPOSITS
At year-end 1993, total deposits were $2,320,975,000, an increase of 1.0% from
the previous year-end total of $2,297,929,000. For the year ended December 31,
1993, total deposits averaged $2,263,482,000, a decrease of 1.0% from the 1992
average of $2,286,830,000. This decrease in average total deposits is primarily
attributable to a decline in time deposits during 1993 as a result of the lower
interest rate environment. The reduction in time deposits was partly offset by
an increase in savings and demand deposits for 1993 as compared to 1992. The
1992 average deposits of $2,286,830,000 decreased by 5.9% over the average for
1991.
DEPOSITS BY TYPE OF DEPOSITOR
December 31
- -------------------------------------------------------------------------------
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
Individuals, partnerships
and corporations $2,137,644 $2,142,649 $2,187,069
United States government 2,555 4,212 2,771
States and political
subdivisions 164,366 131,453 147,998
Other 16,410 19,615 24,076
- -------------------------------------------------------------------------------
Total $2,320,975 $2,297,929 $2,361,914
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Average rates paid by Citizens on interest-bearing deposits were lower during
1993, decreasing throughout the year and ranging from an average of 3.6% in
January to 3.1% in December. These rates averaged 3.3% for the year, down from
4.2% for the year 1992.
DEMAND DEPOSITS - At December 31, 1993, demand deposits amounted to
$424,238,000, an increase of 9.6% from the prior year-end total. Averaging
$387,022,000 for the year ended December 31, 1993, demand deposits increased
11.6% from the 1992 average of $346,721,000. This compares with an increase of
6.9% recorded in 1992 over the 1991 average.
SAVINGS DEPOSITS - At December 31, 1993, total savings deposits, consisting of
money market accounts, NOW accounts and high performance fund accounts, amounted
to $1,094,709,000, an increase of 6.9% from the December 31, 1992 total. Money
market accounts totaled $674,325,000 at year-end 1993, compared with
$612,640,000 at year-end 1992. Citizens' NOW accounts totaled $331,451,000 at
year-end 1993, compared with $299,291,000 at year-end 1992. Citizens' high
performance fund amounted to $88,933,000 at year-end 1993, compared with
$112,465,000 at December 31, 1992. Total savings deposits averaged
$1,043,649,000 in 1993, an increase of 6.3% from the 1992 average of
$981,402,000. In comparison, the average in 1992 was 7.3% more than the 1991
average.
TIME DEPOSITS - At year-end 1993, total time deposits, including certificates of
deposit of $100,000 or more, amounted to $802,028,000, a reduction of 9.5% from
the previous year-end total. In 1993, time deposits averaged $832,811,000, a
decrease of 16.3% from the average of $958,707,000 in 1992. By comparison, the
average for 1992 decreased 19.6% from the 1991 average. Declines in time
deposits primarily resulted from the impact of lower levels of interest rates
causing depositors to seek investment alternatives.
33
-------------
CAPITAL ADEQUACY
Capital adequacy is a measure of the amount of capital needed to sustain asset
growth while providing safety for depositors' funds and shareholders'
investments by acting as a means to absorb unanticipated losses. Citizens
regularly evaluates its requirements for equity capital and long-term debt.
The Board of Governors of the Federal Reserve System has issued rules requiring
banks and bank holding companies to maintain minimum levels of capital as a
percentage of risk-weighted assets. Under these rules, a banking organization's
assets and certain off-balance sheet activities are classified into categories,
with the least capital required for the category deemed to have the least risk,
and the most capital required for the category deemed to have the most risk.
The Board of Governors of the Federal Reserve System has also issued leverage
capital adequacy standards, under which banking organizations must maintain a
minimum ratio of Tier 1 capital to adjusted total assets of at least 3.00% to
5.00%. Both the risk-weighted capital and leverage ratios required for the Bank
have been modified by the regulatory memorandum of understanding as covered in
the following paragraph and table.
In 1992, the Board of Directors of the Bank and the Office of the Comptroller of
the Currency entered into a Memorandum of Understanding ("MOU") terminating a
Cease and Desist Order that had been in effect since 1990. The MOU sets forth
areas that the Bank will continue to address to further the rebuilding process
and requires that the Bank achieve certain capital levels. At December 31, 1993,
the Bank was in full compliance with the MOU, including all such capital level
requirements.
- --------------------------------------------------------------------------------
The following table presents in summary form the capital ratios of Citizens and
the Bank at December 31, 1993 and 1992, as compared with the required minimum
levels established by their regulators:
- --------------------------------------------------------------------------------
Minimum
Regulatory Actual Ratio
Requirement 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
CITIZENS:
Year-end Tier 1 capital to fourth quarter average total adjusted assets (leverage ratio) 5.00% 7.51% 6.38%
Tier 1 capital to total risk-weighted assets 4.00 11.15 9.07
Total capital to total risk-weighted assets 8.00 13.54 11.46
THE BANK:
Year-end Tier 1 capital to fourth quarter average total adjusted assets (leverage ratio) 6.50% 8.07% 6.80%
Tier 1 capital to total risk-weighted assets 7.50 12.02 9.69
Total capital to total risk-weighted assets 10.00 13.30 10.98
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCK AND DIVIDEND INFORMATION
At year-end 1993, 49,859,824 shares of Citizens' common stock were outstanding.
The common shareholders' equity per share at December 31, 1993 was $3.92, up
from $3.25 at the prior year-end. The increase in book value at December 31,
1993 reflects the earnings for the year adjusted for common and preferred stock
dividends. On December 21, 1993, the Board of Directors of Citizens declared a
dividend on the Company's common stock of $.0425 per share payable on February
1, 1994 to shareholders of record at the close of business on January 14, 1994.
The common stock of Citizens is traded on the American Stock Exchange. The
following table sets forth the range of high and low sale prices for common
stock as reported by the American Stock Exchange for the periods indicated:
PRICE RANGES
1993 HIGH LOW
- -----------------------------------------------------------------
FIRST QUARTER $7 1/8 $4 3/4
SECOND QUARTER 7 3/4 6 1/8
THIRD QUARTER 7 1/4 6 3/8
FOURTH QUARTER 7 7/8 6 7/8
- -----------------------------------------------------------------
1992
- -----------------------------------------------------------------
First quarter $5 7/8 $2 5/8
Second quarter 4 7/8 4
Third quarter 6 2 5/8
Fourth quarter 5 7/8 2 7/8
- -----------------------------------------------------------------
34
- -------------
COMPARISON OF SELECTED DATA
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Average Balances 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS
Net loans $1,634,630 $1,638,017 $1,780,955 $2,086,084 $2,028,809
Interest-bearing balances with banks 500 418 194 16,712 50,945
Federal Funds sold 100,482 108,008 109,085 102,458 91,107
Trading account securities 549 550 696 1,386 1,330
Taxable investment securities 493,591 421,310 348,860 198,859 151,302
Tax-exempt investment securities 8,114 2,541 33,990 286,090 253,545
- ------------------------------------------------------------------------------------------------------------------------
Total earning assets 2,237,866 2,170,844 2,273,780 2,691,589 2,577,038
Other assets 254,559 269,116 294,367 270,298 211,795
- ------------------------------------------------------------------------------------------------------------------------
Total assets $2,492,425 $2,439,960 $2,568,147 $2,961,887 $2,788,833
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Demand deposits (non-interest bearing) $ 387,022 $ 346,721 $ 324,265 $ 344,030 $ 343,696
Savings deposits 1,043,649 981,402 914,251 1,038,733 977,148
Time deposits 832,811 958,707 1,192,598 1,310,180 1,165,597
- ------------------------------------------------------------------------------------------------------------------------
Total deposits 2,263,482 2,286,830 2,431,114 2,692,943 2,486,441
Short-term borrowings 8,452 7,539 11,004 56,541 72,455
Long-term debt 19,285 19,336 19,384 19,989 20,404
- ------------------------------------------------------------------------------------------------------------------------
Total deposits and borrowed money 2,291,219 2,313,705 2,461,502 2,769,473 2,579,300
Accrued expenses and other liabilities 19,620 19,727 22,195 19,534 28,311
Shareholders' equity 181,586 106,528 84,450 172,880 181,222
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,492,425 $2,439,960 $2,568,147 $2,961,887 $2,788,833
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
35
-------------
(dollars in thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Net interest income $ 103,859 $ 91,568 $ 78,806 $ 86,767 $ 111,566
Provision for loan losses 17,000 23,000 24,000 153,250 6,600
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income (expense) after
provision for loan losses 86,859 68,568 54,806 (66,483) 104,966
Non-interest income 25,176 15,927 25,189 10,904 9,228
Operating expenses 82,435 74,807 76,792 73,059 64,826
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes,
extraordinary credit and change in
accounting principle 29,600 9,688 3,203 (128,638) 49,368
Income tax expense (benefit) 461 3,452 247 (26,272) 12,178
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary credit
and change in accounting principle 29,139 6,236 2,956 (102,366) 37,190
Extraordinary credit-utilization of net
operating loss carryforward - 3,236 - - -
Cumulative effect of change in
accounting principle 7,168 - - - -
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 36,307 $ 9,472 $ 2,956 $ (102,366) $ 37,190
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Net income (loss)
Primary
Income (loss) before extraordinary credit $ .58 $ .21 $ .13 $(4.83) $1.73
Net income (loss) .72 .32 .13 (4.83) 1.73
Fully diluted
Income (loss) before extraordinary credit .57 .21* .13* (4.83)* 1.63
Net income (loss) .71 .32* .13* (4.83)* 1.63
Cash dividends declared on common stock .0425 - - .36 .63
Total common shareholders' equity at year-end 3.92 3.25 3.96 3.83 9.00
Weighted average number of common shares**
Primary 50,121,132 28,814,006 21,382,228 21,233,146 21,433,488
Fully diluted 52,625,002 28,814,006* 21,382,228* 21,233,146* 23,331,380
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on average assets before extraordinary
credit and cumulative effect of change
in accounting principle 1.17% .26% .12% (3.46)% 1.33%
Return on average assets 1.46 .39 .12 (3.46) 1.33
Return on average shareholders' equity before
extraordinary credit and cumulative effect
of change in accounting principle 16.05 5.85 3.50 (59.21) 20.52
Return on average shareholders' equity 20.00 8.89 3.50 (59.21) 20.52
Cash dividends declared on common and
preferred shares to net income (loss) 7.52 - - (7.56) 36.53
Net charge-offs to average total loans 1.70 1.33 2.66 3.29 .26
Average net loans to total deposits 72.22 71.63 73.26 77.46 81.59
Yield on average earning assets*** 7.50 8.15 9.40 10.06 11.30
Cost of interest-bearing liabilities 3.28 4.26 6.17 7.11 7.54
Interest rate spread*** 4.22 3.89 3.23 2.95 3.76
Net yield on earning assets*** 4.71 4.29 3.60 3.65 4.76
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
*Convertible securities have no dilutive effect for the period.
**The increase in the number of shares outstanding reflects the shares issued
in each year. For details of the issuance of common stock see the
Consolidated Statements of Changes in Shareholders' Equity.
***Taxable-equivalent basis.
36
- -------------
AVERAGE RATES AND YIELDS ON A TAXABLE-EQUIVALENT BASIS
(dollars in thousands)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
For the Years Ended December 31 1993
- -----------------------------------------------------------------------------------------------
Average Average
Balance Interest Rate
- -----------------------------------------------------------------------------------------------
Total loans $1,708,083 $ 138,867* 8.13%
Less: Allowance for loan losses 73,453
- -----------------------------------------------------------------------------------------------
Net loans 1,634,630 138,867* 8.50
Interest-bearing balances with banks 500 16 3.20
Federal Funds sold 100,482 3,072 3.06
Trading account securities 549 21* 3.83
Taxable investment securities 493,591 25,313 5.13
Tax-exempt investment securities 8,114 508* 6.26
- -----------------------------------------------------------------------------------------------
Total earning assets 2,237,866 167,797 7.50
Cash and due from banks 114,619
Foreclosed real estate 54,555
Other assets 85,385
- -----------------------------------------------------------------------------------------------
Total assets $2,492,425 $ 167,797 6.73%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Savings deposits $1,043,649 $ 25,303 2.42%
Time deposits 832,811 35,675 4.28
Short-term borrowings 8,452 208 2.46
Long-term debt 19,285 1,300 6.74
- -----------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,904,197 62,486 3.28
Demand deposits (non-interest bearing) 387,022
Accrued expenses and other liabilities 19,620
Shareholders' equity 181,586
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,492,425 $ 62,486 2.51%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Net interest income $ 105,311
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Net yield on earning assets 4.71%
- -----------------------------------------------------------------------------------------------
<FN>
*Adjusted to a taxable-equivalent basis at a 35% tax rate for 1993 and a 34%
tax rate for 1992 and 1991.
37
-------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
For the Years Ended December 31 1992
- -----------------------------------------------------------------------------------------------
Average Average
Balance Interest Rate
- -----------------------------------------------------------------------------------------------
Total loans $1,714,731 $ 149,050* 8.69%
Less: Allowance for loan losses 76,714
- -----------------------------------------------------------------------------------------------
Net loans 1,638,017 149,050* 9.10
Interest-bearing balances with banks 418 14 3.35
Federal Funds sold 108,008 3,792 3.51
Trading account securities 550 33* 6.00
Taxable investment securities 421,310 23,712 5.63
Tax-exempt investment securities 2,541 289* 11.37
- -----------------------------------------------------------------------------------------------
Total earning assets 2,170,844 176,890 8.15
Cash and due from banks 109,929
Foreclosed real estate 77,588
Other assets 81,599
- -----------------------------------------------------------------------------------------------
Total assets $2,439,960 $ 176,890 7.25%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Savings deposits $ 981,402 $ 30,374 3.09%
Time deposits 958,707 51,829 5.41
Short-term borrowings 7,539 220 2.92
Long-term debt 19,336 1,303 6.74
- -----------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,966,984 83,726 4.26
Demand deposits (non-interest bearing) 346,721
Accrued expenses and other liabilities 19,727
Shareholders' equity 106,528
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,439,960 $ 83,726 3.43%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Net interest income $ 93,164
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Net yield on earning assets 4.29%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
For the Years Ended December 31 1991
- -----------------------------------------------------------------------------------------------
Average Average
Balance Interest Rate
- -----------------------------------------------------------------------------------------------
Total loans $1,867,356 $ 179,962* 9.64%
Less: Allowance for loan losses 86,401
- -----------------------------------------------------------------------------------------------
Net loans 1,780,955 179,962* 10.10
Interest-bearing balances with banks 194 11 5.67
Federal Funds sold 109,085 6,118 5.61
Trading account securities 696 61* 8.76
Taxable investment securities 348,860 24,009 6.88
Tax-exempt investment securities 33,990 3,483* 10.25
- -----------------------------------------------------------------------------------------------
Total earning assets 2,273,780 213,644 9.40
Cash and due from banks 112,108
Foreclosed real estate 91,973
Other assets 90,286
- -----------------------------------------------------------------------------------------------
Total assets $2,568,147 $ 213,644 8.32%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Savings deposits $ 914,251 $ 44,022 4.82%
Time deposits 1,192,598 85,858 7.20
Short-term borrowings 11,004 576 5.23
Long-term debt 19,384 1,305 6.73
- -----------------------------------------------------------------------------------------------
Total interest-bearing liabilities 2,137,237 131,761 6.17
Demand deposits (non-interest bearing) 324,265
Accrued expenses and other liabilities 22,195
Shareholders' equity 84,450
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,568,147 $ 131,761 5.13%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Net interest income $ 81,883
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Net yield on earning assets 3.60%
- -----------------------------------------------------------------------------------------------